Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Price pressures improving gradually amid resilient economy

The November release of the ISM services index kicked off the week with a surprisingly strong reading on the U.S. economy. Various price metrics released this week showed some continued signs of inflation cooling, but gradually rather than rapidly.
Next week: CPI (Tue), Retail Sales (Thu), Industrial Production (Thu).

International: Global central banks continue along their rate hike paths

The Bank of Canada raised its policy interest rate 50 bps at this week's meeting, but signaled that further rate hikes would be increasingly data-dependent. Meanwhile, the Reserve Bank of Australia raised its policy rate 25 bps without offering any clear indication of an end to rate hikes. We expect Australia's central bank to tighten policy further next year. The Reserve Bank of India also hiked interest rates and should raise rates further in 2023.
Next week: China Retail Sales & Industrial Output (Thu), Bank of England (Thu), European Central Bank (Thu).

Interest rate watch: The Fed set to hike 50 bps this festive season

We expect to see the fed funds rate rise 50 bps to a range of 4.25%-4.50% at the conclusion of the Federal Reserve's Open Market Committee (FOMC) meeting on December 14. This represents a significant hike over the current range of 3.75%-4.00% but is still a downshift from the four consecutive 75 bps hikes at the prior four FOMC meetings.

Credit market insights: Consumers continue to draw on credit

Consumer credit grew $27.1 billion in October, registering a 6.9% year-over-year gain. This continued rise in new debt is the newest installment in a troubling trend for consumers, as they appear increasingly willing to both borrow and draw down savings in order to fund consumption habits.

Topic of the week: No money, more problems

This week, we focus on the personal saving rate. There has only been one month over the past 60 years in which consumers set aside less of their income than they did in October. That's both remarkable and worrying for the outlook.

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Wells Fargo Research Team

Wells Fargo

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.